A perfect example of how disappointing economic news can cause stocks to move lower was February 7, as U.S. equities lost value as European lawmakers cautioned that the regional economy could be undermined by the high value of the euro and companies released earnings reports below expectation.
The release of discouraging information and the subsequent drop in stocks could be interpreted as risk-off behavior.
The Dow Jones Industrial Average had a losing day, closing down 0.3 percent at 13,944.05, according to Bloomberg. The S&P 500 fared worse during trading, plunging 0.9 percent, but then pared these losses to end the day 0.2 percent lower at 1,509.39.
Data provided by the media outlet indicate that market participants traded 6.6 billion shares on U.S. exchanges during the day, which was 5.6 percent above the three-month average.
The preference that investors displayed for less-risky assets was also illustrated by the decline in the yields of 10-year Treasury bonds to 1.95 percent, according to The Associated Press.
Many market participants anticipated the communications from European Central Bank (ECB) President Mario Draghi, who indicated that regional policymakers are concerned about the value of the euro, Bloomberg reports.
The common currency surged to its highest value in 14 months against the dollar in January and a three-month high against the Japanese yen, and fell 0.9 percent on February 7 to reach $1.34, according to the news source. After Draghi promised on July 26 to do whatever is needed to keep the euro zone intact, the currency has surged 11 percent on a trade-weighted basis.
"There's concern that Europe will implode," Jeff Sica, president and chief investment officer at SICA Wealth Management in Morristown, New Jersey, told the media outlet in a phone interview. "Investors are worried about what the contagion effect is going to be on the U.S. economy."
One key announcement that drew the attention of investors was whether or not the ECB would either maintain or change its rates, and the financial institution decided to keep them the same, according to The Associated Press. The ECB announced that its benchmark rate would stay at 0.75 percent. Many regional firms had urged the ECB to lower its rates.
"The exchange rate is not a policy target, but it is important for growth and price stability," Draghi stated after the rate decision was announced, Bloomberg reports. "We want to see if the appreciation is sustained, and if it alters our assessment of the risks to price stability."
Several firms dropped in value after reporting their financial metrics, with technology firm Akamai predicting that its revenue for the first quarter of 2013 would be between $352 million and $362 million, which caused shares of the firm to fall $6.32 apiece to $35.26, according to the news source.
Software firm Teradata Corp. predicted its 2013 earnings per share will be between $3.05 and $3.20, in comparison to $3.15 forecast by analysts. The company stock fell 7.1 percent during the day to $61.82.
Looking for a reason
"We've moved so far so fast that the market's just looking for any kind of sign to take something off the table," Mark Freeman, who has around $14.1 billion in assets under management as chief investment officer at Dallas-based Westwood Holdings Group Inc., told the media outlet in a phone interview. "The market really needs a positive catalyst to take it higher."
Freeman said this as the benchmark S&P 500 Index has surged 5.8 percent this year amid strong corporate earnings and efforts to reach a budget compromise.
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